The services sector, which accounts for around 60 percent of the GDP, suffered a shrink in its confidence index negatively contributing to ESI which in the first quarter of 2013 rose by 4.3 points to 87.3 percent, remaining 12.7 points below its long term average
TIRANA, April 16 – A surprise confidence boost by the crisis hit construction sector, and moderate optimism by the industry sector and consumers were the key drivers of the recovery for the second quarter in a row in the Economic Sentiment Index (ESI) , measuring both business and consumer confidence, according to a central bank survey for the first quarter of 2013. The services sector, which accounts for around 60 percent of the GDP, suffered a shrink in its confidence index negatively contributing to ESI which in the first quarter of 2013 rose by 4.3 points to 87.3 percent, remaining 12.7 points below its long-term average. ESI has been below its long-term average since the first quarter of 2009 on the onset of the global financial crisis when it plunged by around 30 percentage points to 70 percent compared to the final quarter of 2008.
The confidence index in the construction sector improved by a sharp 30 percentage points in the first quarter of 2013, registering the best performance since the third quarter of 2011, but yet remaining 12.8 percentage points below its long-term historical average. The construction sector which has been in crisis since 2007 saw its foreign direct investment stock drop to Euro 186 million in 2011, down from 227 million in 2010. This despite the fact that most the majority of construction companies have not carried out new investments in the past six months and do no plan new investments in the next six months, says the survey.
All demand, production and employment indicators were perceived significantly more positively in the first quarter of year. One of the key drivers of the Albanian economy until 2008, the construction sector has been continuously shrinking in the past three years due to lower migrant remittances, and tighter lending standards. INSTAT data show construction accounted for 11 percent of the GDP in 2010, down from 15 percent in 2008.
After the recovery in the final quarter of 2012, the services sector became more pessimistic about its prospects in early 2013 with the confidence index dropping by 3.6 percentage points, plunging to 9.6 percentage points below its long-term historical average. The capacity utilization rate dropped to 70 percent, down by 4.9 percent compared to the final quarter of 2012.
Only 15.4 percent of surveyed businesses in the services sector said they had carried out investments in the past six months, mainly in new technology. Perceiving a drop in demand, only 8.7 percent of them plan to invest in new technology or structures in the next six months, says the central bank survey.
The industry sector confidence recovered for the second quarter in a row with the index standing around 3.3 percentage points below its long-term historical average.
Despite being rather more optimistic about their general business situation, the internal demand balance for the industry sector remained almost unchanged while the exports balance dropped by 3.6 percentage points. Industry sectors also made few investments in the past six months and plan to continue the tendency even for the next six months.
After a shrink in the final quarter of 2013, consumers’ confidence slightly improved by 0.5 percentage points in the first quarter of 2013, on better expected financial situation and economic prospects. The big purchases indicator dropped by 8.6 percentage points negatively contributing to consumers’ confidence who since the onset of the global crisis in late 2008 have been on a constant saving trend fearing harsher times ahead. Consumers’ prospects about their household situation and the overall economic situation in the first quarter of 2013 dropped by 2.4 and 4.8 percentage points respectively.
The difficult situation both consumers and business are experiencing is also confirmed by government data. The Finance Ministry data reconfirm the stagnation of domestic consumption, which is the key driver of the Albanian economy at a time when exports’ growth has considerably slowed down due to escalating crisis in the Eurozone and especially top trade partners Italy and Greece.
The value added tax, which accounts for around 38 percent of total tax revenues, and indirectly measures consumption, shrank by 2.2 percent, and was even down 2 percent compared to the revised budget last December. The excise tax imposed on the so-called luxury goods was down by 9.9 percent compared to 2011, revealing that Albanians have cut down on fuel, tobacco, coffee and beer consumption in these times of crisis. An increase by 34 percent in the national taxes was government’s only positive indicator in the 2012 balance sheet.
What’s worse, businesses continue suffering with the profit tax for 2012 down by 14.5 percent. Local government units also collected around 17 percent less in taxes on small businesses.
